Financial Statements and Report of Independent Certified Public Accountants. Mesa Developmental Services Contributory Tax Sheltered Annuity Plan

Transcription

1 Financial Statements and Report of Independent Certified Public Accountants Mesa Developmental Services Contributory Tax Sheltered Annuity Plan

2 INDEX REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3 Page FINANCIAL STATEMENTS STATEMENTS OF NET ASSETS AVAILABLE FOR 5 BENEFITS DECEMBER 31, 2009 AND 2008 STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, NOTES TO FINANCIAL STATEMENTS 7 SUPPLEMENTARY INFORMATION SCHEDULE H LINE 4i SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT END OF YEAR DECEMBER 31,

3 LTJ Logan, Thomas & Johnson, LLC Certified Public Accountants REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Plan Administrator Mesa Developmental Services Contributory Tax Sheltered Annuity Plan We were engaged to audit the accompanying financial statements and supplemental schedules of Mesa Developmental Services Contributory Tax Sheltered Annuity Plan (the Plan) as of, and for the year ended December 31, 2009, as listed in the accompanying index. These financial statements and supplemental schedules are the responsibility of the Planʹs management. As permitted by Section 29 CFR of the Department of Labor s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, the Plan administrator instructed us not to perform, and we did not perform, any auditing procedures with respect to the information summarized in Note G, which was certified by The Variable Annuity Life Insurance Company, the custodian of the Plan, except for comparing such information with the related information included in the financial statements and supplemental schedules. We have been informed by the Plan administrator that the custodian holds the Plan s investment assets and executes investment transactions. The Plan administrator has obtained a certification from the custodian as of and for the year ended December 31, 2009, that the information provided to the Plan administrator by the custodian is complete and accurate. Because of the significance of the information that we did not audit, we are unable to, and do not, express an opinion on the accompanying financial statements and supplemental schedules taken as a whole. The form and content of the information included in the financial statements and supplemental schedules, other than that derived from the information certified by the custodian, have been audited by us in accordance with auditing standards generally accepted in the United States of America and, in our opinion, are presented in compliance with the Department of Labor s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of Broomfield, Colorado November 18, W. 120 th Ave., #165, Broomfield, CO Calvin Logan Jan Thomas Pauline Johnson Phone Phone Phone Fax Fax Fax

4 Financial Statements 4

5 STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS December 31, ASSETS Investments at fair value Annuity contracts $ 2,521,934 $ 2,370,711 Loans receivable from participants 60,948 97,478 Total investments 2,582,882 2,468,189 Receivables Participant contributions 17,233 Employer contributions 8,272 Total assets 2,582,882 2,493,694 Net assets available for benefits $ 2,582,882 $ 2,493,694 The accompanying notes are an integral part of these statements. 5

6 STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS Year ended December 31, 2009 Additions to net assets attributed to: Investment income: Interest $ 16,872 Net appreciation in fair value of investments 437,179 Total net investment gain 454,051 Contributions Participant contributions 158,158 Employer contributions 99,151 Rollover contributions 4,257 Total contributions 261,566 Total additions 715,617 Deductions from net assets attributed to: Benefits paid to participants 623,367 Administrative expenses 3,062 Total deductions 626,429 Net increase in net assets 89,188 Net assets available for benefits: Beginning of year 2,493,694 End of year $ 2,582,882 The accompanying notes are an integral part of this statement. 6

7 NOTES TO FINANCIAL STATEMENTS NOTE A DESCRIPTION OF PLAN The following description of the Mesa Developmental Services Contributory Tax Sheltered Annuity Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan s provisions. 1. General The Plan was established effective March 1, 1982 by Mesa Developmental Services (the Company). It is a defined contribution plan covering all employees of the Company, or any affiliated company that adopts the Plan. There are no age or service requirements for employee elective deferrals. Employees are eligible for employer contributions upon the completion of two years of service in which they have completed 1,000 hours of service. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended. 2. Annuity Contract Plan assets are invested in an annuity contract with The Variable Annuity Life Insurance Company (VALIC). The contract offers a combination of fixed and variable investment options that a participant may choose to invest in. 3. Employee Contributions Each year, participants may contribute up to 100% of pre tax annual compensation, as defined in the Plan subject to Internal Revenue Code limitations. Participants may also contribute amounts representing distributions from other defined contribution plans. Participants direct the investment of their contributions into various investment options under an annuity contract offered by the Plan. 4. Employer Contributions The Plan provides for employer matching contributions at a rate equal to one hundred percent of the elective deferrals of each employee who is eligible for employer contributions up to 3% of compensation. The matching contributions are invested as directed by the participant. 5. Participant Accounts All of a participant s salary reduction and matching contributions are credited to his or her account, as directed by the participant. The value of each of the separate funds is determined by VALIC daily. VALIC then values and increases or decreases each 7

8 NOTES TO FINANCIAL STATEMENTS NOTE A DESCRIPTION OF PLAN (CONTINUED) 5. Participant Accounts (Continued) participant s account to reflect his or her proportionate interest in each of the funds, as adjusted for fund activity, since the preceding valuation date. 6. Loans Participants may obtain loans that are secured by the participants accounts. The loans are between VALIC and the participant and payments are made directly to VALIC by the participant. Interest rates on outstanding loans at December 31, 2009 ranged from 5.0% to 6.5%. 7. Vesting Participants are immediately 100% vested in both elective deferrals and employer matching contributions. 8. Administrative Expenses Individual participants are charged for requests made to VALIC such as transfer of plan assets or distributions. Those charges are shown as administrative expenses on the statement of changes in net assets available for benefits. The Company pays for all other expenses of the Plan. 9. Eligibility for Payment of Benefits Upon termination of service, death, or reaching normal retirement age, the participant may receive benefits as allowed by the Plan equal to the value of the account. Normal retirement age is sixty five; however, participants continue to share in the benefits of the Plan if employment continues past normal retirement age. Pay options include a lumpsum payment, payments of specified amount or for a specified period, or periodic payment to the participant at regular intervals either for a period certain or for one or more lives. Hardship withdrawals may also be taken if certain criteria are met. NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Basis of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting. 8

9 NOTES TO FINANCIAL STATEMENTS NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. Use of Estimates The preparation of the Plan s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosures of contingent assets and liabilities. Actual results could differ from those estimates. 3. Subsequent Events The Plan has evaluated events and transactions occurring subsequent to the end of the fiscal year for potential recognition or disclosure through November 18, 2010, the date on which the financial statements were issued, and did not identify any events or transactions that would have a material impact on the financial statements. 4. Payment of Benefits Benefits are recorded when paid. 5. Investment Valuation and Income Recognition The Plan s investments are stated at estimated fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See note C for discussion of fair value measurements. Purchases and sales of securities are recorded on a trade date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex dividend date. Net appreciation includes the Plan s gains and losses on investments bought and sold as well as held during the year. 6. Fair Value Measurements In September 2009, the FASB issued Accounting Standards Codification (ASC) Update No , Fair Value Measurement Disclosure (Topic 820) Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) (ASC ). This update provides guidance on estimating fair value of a company s investments in investment companies when the investment does not have a readily determinable fair value. It permits the use of the investment s net asset value as a practical expedient to determine fair value. This guidance also requires additional disclosures of the attributes of these investments such as: (1) the nature of any restrictions on the reporting entity s ability to redeem its investment; (2) unfunded commitments; and (3) investment strategies of the investees. The Plan has adopted this guidance. 9

10 NOTES TO FINANCIAL STATEMENTS NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 7. Risks and Uncertainties The Plan provides for various investment options in insurance companies. Investment securities, in general, are exposed to various risks such as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants account balances and amounts presented in the Statements of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits. NOTE C FAIR VALUE MEASUREMENTS Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is established to prioritize the inputs used to measure fair value. This hierarchy requires the Plan to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1 Quoted market prices in active markets for identical assets or liabilities. Level 2 Inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities. The Plan used the following methods and significant assumptions to estimate fair value of the Plan s assets. Annuity Contract Variable Account Options are valued by a purchase unit of interest owned by participants. The units of interest are revalued daily to reflect that day s performance of the underlying mutual fund minus any applicable fees and charges. 10

11 NOTES TO FINANCIAL STATEMENTS NOTE C FAIR VALUE MEASUREMENTS (CONTINUED) Annuity Contract Fixed Account Options are valued by the following calculation on a given business day: All purchase payments made to the Fixed Account Options, plus Amounts transferred from Variable Account Options to the Fixed Account Options, plus All interest earned, minus Amounts transferred or withdrawn from Fixed Account Options (including applicable fees and charges). The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include transferring funds to another funding entity. There is a charge at the time of surrender or withdrawal equal to 5% (i) the amount withdrawn, or (ii) the amount of any purchase payments received during the most recent 60 months prior to the surrender or withdrawal, whichever is less. The following table presents the investments measured at fair value on a recurring basis at December 31, 2009: Fair Value Level 1 Level 2 Level 3 Annuity Contract: Domestic Large Cap Equity $ 528,012 $ $ 528,012 $ Domestic Mid Cap Equity 325, ,786 Domestic Small Cap Equity 115, ,305 Global Equity 94,152 94,152 International Equity 224, ,154 Specialty 52,285 52,285 Hybrid (Equity and Fixed) 358, ,259 Fixed Income 823, , ,724 Loan 60,948 _60,948 Total investments $ 2,582,882 $ $ 2,124,210 $ 458,672 11

12 NOTES TO FINANCIAL STATEMENTS NOTE C FAIR VALUE MEASUREMENTS (CONTINUED) The following table presents the investments measured at fair value on a recurring basis at December 31, 2008: Fair Value Level 1 Level 2 Level 3 Annuity Contract: Domestic Large Cap Equity $ 521,431 $ $ 521,431 $ Domestic Mid Cap Equity 321, ,194 Domestic Small Cap Equity 137, ,687 Global Equity 95,631 95,631 International Equity 226, ,694 Specialty 48,360 48,360 Hybrid (Equity and Fixed) 298, ,991 Fixed Income 720, , ,378 Loan 97,478 _97,478 Total investments $ 2,468,189 $ $ 1,999,333 $ 468,856 The following table presents a summary of changes in the fair value of the Plan s Level 3 assets for the year ended December 31, 2009: Loans Fixed Income Total Beginning balance $ 97,478 $ 371,378 $ 468,856 Interest credited 2,683 14,189 16,872 Purchases, issuances, and settlements, net (39,213) 12,157 (27,056) Ending balance $ 60,948 $ 397,724 $ 458,672 The following table presents a summary of changes in the fair value of the Plan s Level 3 assets for the year ended December 31, 2008: Loans Fixed Income Total Beginning balance $ 117,217 $ 488,460 $ 605,677 Interest credited 4,413 15,603 20,016 Purchases, issuances, and settlements, net (24,152) (132,685) (156,837) Ending balance $ 97,478 $ 371,378 $ 468,856 12

13 NOTES TO FINANCIAL STATEMENTS NOTE D INVESTMENTS During 2009, the Plan s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $437,179. All of the appreciation in the fair value of investments was related to the annuity contract. The fair value of individual investments that represent 5% or more of the Plan s net assets as of December 31, are as follows: Annuity Contracts Stock Index Fund $ 183,309 $ 169,548 Vanguard Windsor II 155, ,534 Mid Cap Index Fund 301, ,293 Vanguard Wellington Fund 312, ,070 Fixed Account Plus 300, ,514 Strategic Bond Fund** 165, ,085 **This investment was not greater than 5% of the Plan s net assets in NOTE E PLAN TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan subject to the provisions of ERISA. If the Plan is terminated for any reason, the Plan administrator is to distribute immediately each participant s interest to the participant or beneficiary. NOTE F INCOME TAX STATUS There is no current program under which a plan sponsor can obtain assurance that the written form of its plan satisfies 403(b) requirements, other than through a private letter ruling. As indicated in IRS Notice , the IRS and Treasury have therefore concluded that compliance with the final regulations would be facilitated by the establishment of both pre approved and individually designed plan programs and that transition relief should be provided to all 403(b) plan sponsors who have made appropriate efforts to comply with the written plan requirement in the final regulations. The Company believes they are in compliance with the final regulations. The Plan recognizes tax liabilities when, despite the Planʹs belief that its tax return positions are supportable, the Plan believes that certain positions may not be fully sustained upon review by tax authorities. 13

14 NOTES TO FINANCIAL STATEMENTS NOTE F INCOME TAX STATUS (CONTINUED) Benefits from tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. The Plan has concluded there is no tax liability or benefit required to be recorded as of. NOTE G INFORMATION PROVIDED BY THE CUSTODIAN (UNAUDITED) The Plan administrator has elected the method of annual reporting compliance permitted by 29 CFR of the Department of Labor s Rules and Regulations for Reporting and Disclosure under ERISA. Accordingly, VALIC, the custodian of the Plan, has certified that the following unaudited data included in the accompanying financial statements and supplemental schedules is complete and accurate: Investments as shown in the Statements of Net Assets Available for Benefits Interest and net appreciation in fair value of investments as shown in the Statement of Changes in Net Assets Available for Benefits The Schedule of Assets Held for Investment Purposes at End of Year included as supplementary information NOTE H RELATED PARTY TRANSACTIONS VALIC is an indirect, wholly owned subsidiary of American International Group, Inc. (AIG). Certain Plan investments represent units or options for which VALIC or AIG are advisors or sub advisors, therefore, these investments and investment transactions qualify as party in interest transactions. Fees charged to the Plan for investment management services by VALIC were $3,062 in

15 Supplementary Information 15

16 SCHEDULE H LINE 4i SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT END OF YEAR December 31, 2009 (b) (c) (e) Identity of issue, borrower, lessor Description Current (a) or similar party of investment Value The Variable Annuity Life Insurance Company * Aggressive Growth Lifestyle Annuity Contract $ 2,189 Ariel Appreciation Fund Annuity Contract 883 Ariel Fund Annuity Contract 18,421 Blue Chip Growth Fund Annuity Contract 15,912 Broad Cap Value Income Fund Annuity Contract 10 * Capital Conservation Fund Annuity Contract 416 * Conservative Growth Lifestyle Fund Annuity Contract 283 * Core Bond Fund Annuity Contract 2,427 Core Equity Fund Annuity Contract 18,635 Core Value Annuity Contract 2,193 * Fixed Account Plus Annuity Contract 300,829 Foreign Value Annuity Contract 43,933 Global Equity Fund Annuity Contract 51,231 Global Real Estate Fund Annuity Contract 28,547 * Global Social Awareness Fund Annuity Contract 13,487 Global Strategy Annuity Contract 887 * Growth Fund Annuity Contract 13,817 Health Sciences Fund Annuity Contract 14,771 * High Yield Bond Fund Annuity Contract 11,259 * Inflation Protected Fund Annuity Contract 20,812 * International Equities Fund Annuity Contract 53,563 * International Government Bond Annuity Contract 28,113 International Growth I Fund Annuity Contract 5,393 * International Small Cap Equity Annuity Contract 121,265 Large Cap Core Annuity Contract 3,271 Large Cap Value Fund Annuity Contract 7,886 Large Capital Growth Fund Annuity Contract 42,084 Mid Cap Growth Fund Annuity Contract 15,789 * Mid Cap Index Fund Annuity Contract 301,774 * Mid Cap Strategic Growth Annuity Contract 2,726 Mid Cap Value Fund Annuity Contract 4,614 * Moderate Growth Lifestyle Annuity Contract 41,882 * Money Market I Fund Annuity Contract 15,496 * Money Market II Fund Annuity Contract 126,779 * Science & Technology Fund Annuity Contract 37,514 * Short Term Fixed Account Annuity Contract 96,895 * Small Cap Growth Fund Annuity Contract 81 * Small Cap Index Fund Annuity Contract 66,189 Small Cap Special Value Fund Annuity Contract 4,365 16

17 SCHEDULE H LINE 4i SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT END OF YEAR December 31, 2009 (b) (c) (e) Identity of issue, borrower, lessor Description Current (a) or similar party of investment Value Small Cap Value Fund Annuity Contract 25,401 Small Mid Growth Fund Annuity Contract 848 * Socially Responsible Fund Annuity Contract 84,100 * Stock Index Fund Annuity Contract 183,309 * Strategic Bond Fund Annuity Contract 165,386 Value Fund Annuity Contract 1,362 Vanguard Lifestrategy Moderate Annuity Contract 1,785 Vanguard Long Term Treasury Annuity Contract 53,106 Vanguard Lt Inv Grade Fund Annuity Contract 2,463 Vanguard Wellington Fund Annuity Contract 312,120 Vanguard Windsor II Annuity Contract 155,433 Participant Loans Loans (Interest at 5.00% 6.50%; maturing in 2011 through 2014) 60,948 $ 2,582,882 * Denotes party in interest. 17